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Banks to set up special loans for Nano

Banks to design special loans for Nano

Apnaloan.com Research Bureau

21 Jan 2008

The Nano has opened up a
new category of borrowers - somewhere between borrowers for two-wheeler loans
and cars loans, say bankers reacting to the Tata car launch.

As reported by Business
Line, ICICI Bank is looking at offering personal loans along with a car loan
for the Nano. According to Mr. Ravi Narayanan, Group Business Head, Vehicle
Loans, ICICI Bank, the Rs 1-lakh car has created a new segment of customers,
who would typically fall into the middle-class or lower middle-class segment.
The loan should, therefore, not only cover the capital cost but also the
running cost of the vehicle as it will otherwise be difficult for customers to
meet the monthly expenses arising out of the car.

With the volumes of the
Rs 1-lakh car expected to pick up, the four-wheeler share of auto loans could
increase over the next three to four years. This will push banks to design
products to meet the changing customer profile, operating cost, and logistics requirement,
Mr Narayanan added.

The interest rate on loans
for the Nano is likely to be higher than that of the other cars but lower than
that on two-wheeler loans. Similarly, the tenure of the loan may fall between
car loans and two-wheeler loans. Currently, interest rates on car loans and
two-wheeler loans range from 12-14 per cent and 18-22 per cent respectively.
While the tenure of a car loan is around five years, it's two years for a
two-wheeler.

As reported by Business
Line, according to Mr Manoj Mohta, Head-Research, Crisil, the customer for Nano
would have a 'higher risk' profile compared to other cars and may be closer to
the risk profile of a two-wheeler customer, with default rates being higher.

However some banks are being
cautious and will look at aspects such as the resale value of the car before
deciding the interest rate.

As reported by Business
Line, Mr P. Sridhar, Senior Vice-President, IndusInd Bank said, "We will be
cautious while funding loans for the Nano because often with Tata cars, whether
it is the Indica or the Sierra, design defects have cropped up and customers
have been dissatisfied. If there are design defects it will affect the resale
value of the car which could drop to just Rs 50,000-60,000."